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    Why are stock investors ignoring high PE multiples

    Synopsis

    ‘Larger growth over time can offer people more comfortable in buying high-priced FMCG stocks’

    Hemag Jani MOFSL
    The rally we have seen in last few days has been ferocious by any standards, but the risk appetite has not come back.
    Hemang Jani of Motilal Oswal says people are trying to stay with bigger companies, businesses that are performing well and where there is no other debt-related issues.

    When do you think investors would say it would be foolish to buy a stock at a PE multiple of 60 and ignore a value stock at a PE multiple of 6? When do you think that flip will happen? Are you telling your clients to do it? Do you think it makes sense now to not buy a Britannia or a Titan but buy let’s say BHEL or for that matter BEL or NMDC?
    Typically the way it plays out is that in a certain phase of the market, where people have made a lot of money and there is a broadbased bull market, there is a higher risk appetite to go in for something which has not moved up or where there can be a turnaround story and stuff like that.

    The rally we have seen in last few days has been ferocious by any standards, but the risk appetite has not come back. People would still want to have a larger component of their portfolio in bigger companies, businesses that are performing well and there is no other debt-related issues. Typically in this kind of environment, if you try and get into something which apparently looks cheap, it might not play out that way. This value buying and comparative valuations, etc, is not something that will give you too much comfort. Yes, within the broader universe, you might have some companies where there is a strong niche play or visibility. That is something that one can definitely look at.

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    It is as diverse in the FMCG space as it can be. Unlike autos, which are trading at blanket PE multiples, each and every FMCG company has a different story and is quoting different valuation multiples currently. Within FMCG, where do you find comfort to buy afresh?
    Some of these companies have delivered exceptionally good volume growth in this tough environment: Britannia has reported 24% volume growth, Marico has reported a reasonably good growth. Of course, there are certain disappointments also like Dabur. HUL numbers in terms of volume growth were not that promising. If there is bigger trend in volume growth in May-June from what it was in April-May and eventually if there is a larger growth over time, people will be more comfortable buying these high-priced FMCG companies rather than buying something that apparently looks cheap. Within that space, we continue to like something like an HUL and to some extent Nestle and Marico. we have been liking Britannia a lot, but this entire inter-corporate deposit issue could cause a bit of a discomfort in terms of valuation expansion. Otherwise Britannia numbers were exceptionally good.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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